IPOs: Redlands Shines Spotlight on Education, Low-Tech IPO Pipeline

Bottom line: New listing plans by education
firm Redlands and steel-trading platform Zhaogang point to
lower-tech offshore IPOs taking center stage in the first half of
the year until the situation for fintech candidates
stabilizes.

With fintech offerings in a
holding pattern, a stream of lower-tech IPOs are finding their way
to market in the first few months of this year. The latest of those
is education company Redlands, which has just filed to sell up to $300
million worth of stock in a New York listing. At the same time
another lower-tech offering, a steel-trading platform called
Zhaogang, is also in the headlines, with media
reporting it is gearing up for a Hong Kong listing that could raise
up to $500 million.

It's hard to spot a trend from just two offerings, but these
deals do have a particularly low-tech bent to them. That's probably
at least partly because many of the higher-tech offerings in the
current market, which were coming from financial technology firms,
or fintech, are on hold at the moment due to regulatory
uncertainty. That said, education does seem to be a flavor of the
moment, at least in part because many of the companies going to
market have found ways to quickly scale-up their business using
online models.

On that note, let's jump right in with Redlands, which is the
latest in a string of education-related fund-raisings that include
both IPOs, new share issues and venture capital investments over
the last few months. Redlands has made its first public filing for
a listing in New York, including the relatively large $300 million
fund-raising target. (English
article) The company appears to have a niche providing more
professional-oriented education, as opposed to many others that
tend to be more mainstream.

Redlands still looks quite small, earning just $90 million in
revenue for the 12 months through June last year. That's equally
unimpressive considering the company was founded in 2003, or more
than a decade ago -- an eternity in today's fast-paced Internet
age. The company lost $21 million for that period, though it's
worth noting its losses are coming down rapidly. It has also signed
on an impressive lineup of investment banks, including
Goldman Sachs, Credit Suisse and
JPMorgan.

The $300 million fund raising
target implies the investment banks think this company is probably
worth about $1.5 billion, which is a fairly large sum. The only
other education company to list recently, Rise Education (Nasdaq: REDU), earns far more revenue, around
$800 million a year. But its profits are also quite small at just
$80 million, reflecting difficulty earnings profits in this
labor-intensive industry. Perhaps Redlands thinks it has much
better profit potential due to its recent shift to online
education, which would justify the higher value than Rise, which is
currently only worth $900 million.

Riches in Steel

Next there's the Zhaogang news, which is quite brief and comes
in the form of some comments from the CEO. He says the company is
aggressively pursuing a listing in Hong Kong, though it's still a
little early. (Chinese
article) The $500 million fund-raising target is also
presumably coming from him, which means that could also be a bit
overly optimistic since there's nothing officially filed yet.

But the company does look relatively well-positioned in its
space, commanding over 40 percent of China's online steel-trading
market. That may sound a bit niche, and we don't have any
financials to look at in terms of the trading volume it handles.
But given the size of China's steel market, this company is
presumably handling relatively large volume. That might explain why
the company's chief believes Zhaogang should be worth more than $2
billion, though we'll have to wait and see more specifics when it
files.

The other deal I'm aware of that's in the pipeline is another
low-tech offering for GreenTree, China's only
remaining major hotel operator that isn't listed. That listing is
set to take place in the second quarter, one of my sources
previously told me, and could raise up to $600 million. (English
article)

Other than that trio, the only other major offshore listings by
Chinese firms so far this year have come from
Huami, a smart watch maker linked to smartphone
maker Xiaomi; and a filing from
iQiyi, the online video site controlled by online
search leader Baidu
(Nasdaq: BIDU). Both of those deals look a little more traditional
high-tech, though each is notably not from the financial realm.

I do expect we will see the fintechs come back into the IPO
queue later this year when their situation becomes clearer. The
bottom line is that the year is already off to a strong start for
venture-backed Chinese IPOs in New York and Hong Kong, and I expect
we could see a bumper crop of listings in 2018.